Remember when you first got your driver’s license? When you had that feeling of endless freedom and possibility. There is so much excitement that comes along with being able to drive – and even more excitement when you’re finally ready to buy your first car.
If you’re on the road to purchasing your first car, you know that it can be a daunting financial endeavor. But have no fear! We’ve got some tips to get you started on finally buying your new ride.
1. Set Your Budget
Before you buy a car, it’s important to know how much you can afford. And, unfortunately, calculating your new car’s cost isn’t as simple as the sticker price makes it seem. There are other fees associated with buying a car, including insurance, taxes, title and registration, dealer fees, and financing costs. Do a little research to find all the costs of buying a car, or find a comprehensive car loan calculator online to see how much you can expect to pay every month. Once you settle on a price you like, check and double check your budget to make sure you can comfortably afford your monthly payments.
2. Research Your Options
Now that you know what you can afford, do your research. Look at all your options, including new and used cars, or even leasing one (with a later option to buy). Take advantage of all resources available to compare and contrast options, read reviews, and take 360-degree tours. With so much information at your fingertips, it’s never been easier to find the perfect car for you. Your research should involve future financial considerations, like gas mileage, reliability, and likelihood of repairs. Just try to be patient. Buying a car is exciting, but you shouldn’t necessarily jump at the first offer presented by a salesperson trying to capture a commission.
3. Know Your Credit Score
Before you make a big purchase decision like buying a car, it’s always a good idea to know where you stand financially. Monitor your credit score regularly, and carefully review your credit report once per year. But if it’s been a while, check your score and review your report before you apply for financing. Checking your credit score is free and shouldn’t negatively impact your score, as long as you do it through your financial institution or one of the three major credit bureaus. Check for errors like accidental or errant entries on your credit report (which you should report right away). Knowing your credit score can also help you more accurately anticipate your interest rate and expected monthly payment.
4. Try to Improve Your Credit Score
If you don’t like what you see in your credit report, there are things you can do to improve your score, which may in turn allow you to qualify for a lower interest rate and lower your monthly payment on your car loan. Make sure all your credit accounts are current, and keep paying your bills on time and paying down your debt. Using a credit card regularly and responsibly is a great way to improve your credit score. Even unrelated to buying a car, building your credit score has many advantages, and it’s worth the eventual price you pay, even if you have to delay your new car purchase for a period of time.
5. Save for a Down Payment
Even if you have a great credit score, financing a car can be expensive. So, the more you can pay for your car upfront, the more you’ll save in interest charges down the road. If you’re buying a new car, you’ve probably heard that its value takes a big hit the moment you drive it off the lot. That means you’ll probably owe more than your car is worth for the first little while. But if you save up for a down payment, you can mitigate this kind of car buying discrepancy. Most lenders want to see a 20 percent down payment for a new car or 10 percent for a used car, but obviously the bigger the down payment, the smaller your loan (and interest payments) will be.
6. Shop for a Loan First
It might come as a surprise if you’re new to car buying, but your car dealer doesn’t always have your best interest in mind. Dealers and salespeople make money by selling you extras and by increasing their margins by upping your prices and fees. They can also make money by recommending preferred lenders, which aren’t always in your best personal (or financial) interest. Before you go shopping for a new car, consider shopping for a new loan first. Compare rates with banks and credit unions to see where you can get the best interest rate and the best loan service.
7. Negotiate the Right Price
This is where all your research pays off. Information is power when it comes to car buying. The more you know about how much you should pay, the more easily you can negotiate a price that’s right for you. You can also wait for good deals like manufacturer incentives, or for inventory to change over (usually toward the end of the year) to get a better price. If you shopped for a loan first and you have a preapproval letter (or if you’re paying cash), you can usually negotiate a lower price too. You may also be able to find a salesperson trying to meet a monthly quota toward the end of the month.